US tech groups scour supply chains for China risks

The biggest US technology companies are re-examining their supply chains to identify Chinese groups that may be targeted in the escalating trade war between China and the US.

Executives at several multinational tech companies told the Financial Times they were poring through their list of suppliers to work out what they might do if a key business was hit by sanctions either from the US or China.

Cisco, the network equipment maker, has already said it had “greatly reduced” its manufacturing in China, while others said they were worried about continuing to buy from Chinese camera makers, drone makers and consumer electronics companies.

Most companies did not want to be named, but lawyers and industry groups said they had received requests from the industry to help them identify companies that might fall under the spotlight in Washington.

John Miller, vice-president for policy at the Information Technology Industry Council, which represents multinational tech companies, said: “A lot of technology and telecoms companies right now are paying close attention to their supply chains. Many are seeking the help of government to identify possible risk factors too.”
A senior executive at a global tech group said: “We are going through our supply chain looking for where might it get hit, of course. You would have to be mad not to do so in the current political climate.”

Many technology executives were taken aback when the Trump administration announced a series of measures targeting Huawei last month. Though it had been widely expected that the president would ban the Chinese telecoms equipment maker from 5G networks, the scope of his executive order came as a surprise, as did the decision by the commerce department to stop US companies exporting to Huawei.

In the wake of that move, many technology companies have been re-examining which other suppliers might be hit.

Mr Trump has given Wilbur Ross, the commerce secretary, the power to ban any technology company he thinks might pose a national security risk. Mr Ross is due to make a decision about exactly which ones to target in just over three months.

George Mathew, the chief executive of Kespry, a US group that makes software for drones, said he might have to change his company’s entire manufacturing policy should the Trump administration take action against DJI, the Chinese drone maker. Last month the US Department of Homeland Security warned that DJI drones were capable of collecting and transferring users’ data to other parties or countries.

Mr Mathew, whose company has a partnership with DJI, said he had not experienced any problems or data leaks from the Chinese company. But he added: “If things escalate in a way where DJI is now considered a source of data that is compromised or there are certain concerns around it, that changes the entire dynamic. We have a historic manufacturing base that we were shifting to DJI, but there is a possibility we might have to extend it instead.”

Other Chinese companies also appear to be at risk. Hikvision, the surveillance equipment maker, is preparing for the possibility that it will be put on the US export blacklist in the coming weeks.

One US industry consultant said he had been approached by a multinational company asking for an assessment of whether Xiaomi, the consumer electronics company, could also be targeted.

More worrying for many US technology companies are the signs of retaliation from Beijing.

On Friday, China announced it would launch its own blacklist of “unreliable” foreign entities which could be restricted from selling in China. Many are worried that Beijing might also restrict exports of rare earths, which are commonly used in technology such as electric cars or drones, and which are overwhelmingly produced in China.

Jim Litinsky, co-chairman of MP Materials, the only US rare earths mine, said his company had been contacted by more than one multinational company asking how quickly it could ramp up production should imports from China be squeezed.

He added: “We are increasing production as quickly as possible. But if China were to do that, it would be a dramatic escalation of the conflict — the beginning of cold war 2.0.”

Jim Lewis, director of the Washington-based technology programme at the Center for Strategic and International Studies, said: “It is not the high-end technology which is most at risk, but some of the lower-end products in which China specialises.

“Things like capacitors, which are cheap and easy to make, and for which US companies are now starting to look towards Japan, South Korea, Taiwan or Vietnam.”